M/S. BENCHMARK INFOTECH (P) LTD.,GURGAON vs. ACIT, FARIDABAD

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES “G” : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No.3067/Del./2016 Assessment Year 2012-2013 M/s. Benchmark The ACIT, Infotech (P) Ltd., C-13, Central Circle-II, Sushant Lok, Phase-1, vs., Gurgaon – 122 002 Faridabad. PAN AACCB9984D (Appellant) (Respondent) For Assessee : Dr. Rakesh Gupta, And Shri Deepesh Garg, Advocates. For Revenue : Shri H.K. Chaudhary, CIT-DR Date of Hearing : 08.09.2021 Date of Pronouncement : 25.11.2021 ORDER PER R.K. PANDA, A.M.

This appeal filed by the assessee is directed against the order dated 31.03.2016 of the Ld. CIT(A)-3, Gurgaon, relating to the A.Y. 2012-2013.

1. Page 62, Annexure A4 Mukesh Singh from the assessee in cash. Receipt of Rs.18,00,000/- by Sh.

2. Page 63, Annexure A4 Anil Kumar from the assessee in cash. 2.1. He, therefore, asked the assessee to explain the abovementioned seized documents to which the assessee filed the following reply :

M/s. Benchmark Infotech (P) Ltd., Gurgaon. 2.2. Since the cash receipt of Rs.24,12,000/- was shown as income from other sources in the revised return filed on 20.02.2013, but, the same has not been incorporated in the original return of income filed on 23.09.2012, the A.O. initiated penalty proceedings under section 271AAA of the I.T. Act on the ground that assessee has given no justification regarding the manner in which the above undisclosed investment/income has been earned.

2.3. During the penalty proceedings the A.O. again asked the assessee to explain as to why the penalty proceedings under section 271AAA of the I.T. Act should not be initiated. Rejecting the various explanation given by the assessee and observing that the assessee in the instant case has not been able to substantiate the manner in which the income has been earned, the A.O. levied the penalty of Rs.2,41,200/- under section 271AAA being 10% of the undisclosed income of Rs.24,12,000/-.

2.4. In appeal, the Ld. CIT(A) upheld the action of the A.O. by observing as under :

M/s. Benchmark Infotech (P) Ltd., Gurgaon.

M/s. Benchmark Infotech (P) Ltd., Gurgaon.

3. Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds :

1. “That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld.AO in imposing penalty of RS.2,41,200/- (i.e. 10% of Rs.24,12,000/-) on the amount of alleged undisclosed income, more so when assessee is eligible for immunity under sub section 2 to section 271 AAA of the Income Tax Act, 1961.

2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in assuming

M/s. Benchmark Infotech (P) Ltd., Gurgaon. jurisdiction in passing the impugned penalty order being illegal, void ab-initio, contrary to law and facts and without observing the principles of natural justice. 3. That the assessee craves the leave to add, alter or amend the grounds of appeal at any stage and all the grounds are without prejudice to each other.”

4. The assessee has also filed the following additional grounds :

1. “That having regard to the facts and circumstances of the case, Ld. AO has erred in law and on facts in imposing penalty and passing the impugned penalty order more so when the charge on penalty notice dated 29.03.2014 was not specified.

2. That in any case and in any view of the matter, action of Ld. AO in imposing penalty and passing the impugned penalty order more so when the penalty notice dated 29.03.2014 is invalid is M/s. Benchmark Infotech (P) Ltd., Gurgaon. illegal, bad in law, void ab initio and against the facts and circumstances of the case.”

4.1. Learned Counsel for the Assessee referring to the additional grounds filed by the assessee submitted that the additional grounds are purely legal in nature and the material facts are already available on record. Relying on the following decisions, he submitted that the additional grounds should be admitted for adjudication.

1. CIT vs., Sinhgad Technical Education Society [2017] 397 ITR 344 (SC).

2. NTPC Ltd., vs., CIT [1998] 229 ITR 383 (SC).

3. VMT Spinning Co. Ltd., vs., CIT & Anr., [2016] 389 ITR 326 (P&H).

4. CIT vs., Sam Global Securities [2014] 360 ITR 682 (Del.).

6. Inventors Industrial Corporation Ltd., vs., CIT [1992] 194 ITR 548 (Bom.).

M/s. Benchmark Infotech (P) Ltd., Gurgaon. 4.2. The Ld. D.R. on the other hand objected to the admission of the additional grounds.

4.3. After hearing both the sides and considering that the additional grounds are purely legal in nature and all material facts are already available on record, the additional grounds are admitted for adjudication.

4.4. Learned Counsel for the Assessee referring to the copy of notice issued under section 274 r.w.s. 271AAA of the I.T. Act dated 29.03.2014 submitted that the inappropriate words in the said notice has not been struck-off. Relying on various decisions, he submitted that since the inappropriate words have not been struck-off, therefore, such penalty notice being not in accordance with law should be quashed.

4.5. So far as the merits of the case is concerned, the Learned Counsel for the Assessee referring to the copy of the statement of Roop Kumar Bansal recorded on 25.07.2011 under section 132(4) of the Income Tax Act, 1961 submitted that the assessee was never asked regarding the manner of earning the undisclosed income. He submitted that assessee

M/s. Benchmark Infotech (P) Ltd., Gurgaon. has fulfilled the two conditions i.e., assessee has admitted the undisclosed income and paid the taxes together with interest in respect of such undisclosed income. So far as the manner of substantiation of the same is concerned, since no question was asked at the time of search in the statement recorded under section 132(4) of the I.T. Act, therefore, the assessee cannot be fastened with the liability of penalty under section 271AAA of the I.T. Act, 1961.

4.6. Referring to the decision of the Hon’ble Bombay High Court in the case of PCIT (Central) vs., Phoenix Mills Ltd., [2019] 307 CTR 700 (Bom.) he submitted that the Hon’ble Bombay High Court in the said decision has held that if the Revenue failed to question the assessee while recording his statement under section 132 (4) as regards the manner of deriving such income, the Revenue cannot jump to the consequential or later requirements of substantiating the manner of deriving the income as provided under section 271AAA(2) of the I.T. Act, 1961.

M/s. Benchmark Infotech (P) Ltd., Gurgaon. 4.7. Referring to the decision of Hon’ble Gujarat High Court in the case of PCIT vs., Mukeshbhai Ramanlal Prajapati [2017] 398 ITR 170 (Guj.) he submitted that the Hon’ble Gujarat High Court in the said decision has held that it is only when officer of raiding party recording statement of assessee under section 132(4) elicited response from assesse's this requirement, assessee's responsibility to substantiate manner of deriving such income would commence. Thus, when base requirement itself failed, question of denying benefit of no penalty would not arise.

4.8. Referring to the decision of Hon’ble Gujarat High Court in the case of PCIT vs., M/s. Patdi Commercial and Investment Ltd., [2020] 420 ITR 308 (Guj.) he drew the attention of the Bench to para 6.4 of the order which reads as under :

“6.4. As per settled legal position, where the revenue had failed to question the assessee while recording the statement under section 132(4) of the Act as regards the manner of deriving such income, it cannot

M/s. Benchmark Infotech (P) Ltd., Gurgaon. jump to the consequential or laster requirement of substantiating the manner of deriving the income. It is only when the officer elicits a response that such a requirement, the assessee's responsibility to substantiate manner of deriving such income would commence. When the base requirement itself fails, the question of denying the benefit of no penalty would not arise. After the director responded to question Nos.7 and 8, nothing further was asked and hence he cannot be faulted for not giving further details.”

4.9. Referring to the decision of Coordinate Bench of the Tribunal in the case of Neerat Singal vs., ACIT [2014] 146 ITD 152 (Del.) he drew the attention of the Bench to the order of the Tribunal in the said decision at para-16 which reads as under :

“16. In view of above facts of the present case wherefrom it is evident that during the course of search proceedings the authorized officer of the department had not raised any specific query regarding the manner in M/s. Benchmark Infotech (P) Ltd., Gurgaon. which the undisclosed income has been derived and on the contrary the assessee has tried to explain the earning of the undisclosed income in question in its reply during the course of recording of his statement u/s 132(4) of the Act and thereafter. We thus respectfully following the ratio of above cited decisions of Hon'ble Allahabad High Court and Hon'ble Gujarat High Court hold that in absence of query raised by the authorized officer during the course of recording of statement u/s 132 (4) about the manner in which the undisclosed income has been derived and about its substantiation, the AO was not justified in imposing penalty u/s 271AAA of the Act specially when the offered undisclosed income has been accepted and due tax thereon has been paid by the assessee. We thus while setting aside orders of the authorities below in this regard direct the AO to delete the penalty of Rs.12,50,00,000/- levied u/s 271AAA of the Act. The ground is accordingly allowed.”

M/s. Benchmark Infotech (P) Ltd., Gurgaon. 4.10. He accordingly submitted that in absence of any query raised by the authorized officer during the course of recording of statement under section 132(4) about the manner in which the undisclosed income has been derived the AO was not justified in imposing penalty under section 271AAA, particularly when the offered undisclosed income has been accepted and due tax thereon along with interest has been paid by the assessee. He also relied on the following decisions :

2. Smt. Rashmi Jalan vs., ACIT ITA.No.326/Kol/ 2020 Dated 30.09.2020.

M/s. Benchmark Infotech (P) Ltd., Gurgaon. 5. Shri Devang R. Shah vs., ACIT, ITA.No.1663/Mum./2017, Dated 13.02.2019 (Mum.).

5. The Ld. D.R. on the other hand heavily relied on the order of the Ld. CIT(A).

M/s. Benchmark Infotech (P) Ltd., Gurgaon.

M/s. Benchmark Infotech (P) Ltd., Gurgaon. 6.1. A perusal of the above clearly shows that the A.O. has categorically mentioned regarding liability of the assessee for penalty proceedings under section 271AAA of the I.T. Act. The non-striking of the other parts of the notice is immaterial in the instant case in view of the categorical writing of the A.O. regarding the conditions for initiation of penalty proceedings under section 271AAA of the Act. Therefore, various decisions relied on by the Learned Counsel for the Assessee will not help him. We, therefore, dismiss the additional grounds raised by the assessee challenging the validity of the notice issued under section 274 r.w.s. 271AAA of the I.T. Act, 1961. Thus, the additional grounds raised by the assessee are dismissed.

6.2. So far as the merits of the case is concerned, we find the A.O. in the instant case levied penalty of Rs.2,41,200/- under section 271AAA of the I.T. Act, 1961 on the ground that the assessee has given no justification regarding the manner in which the undisclosed investment/ income of Rs.24,12,000/- has been earned. We find the Ld. CIT(A) confirmed the penalty levied by the A.O, the reasons of M/s. Benchmark Infotech (P) Ltd., Gurgaon. which have already been reproduced in the preceding paragraph. It is the submission of the Learned Counsel for the Assessee that since the assessee has already surrendered the amount of Rs.24,72,000/- and paid the taxes thereon along with interest and since no question was asked during the course of search in the statement recorded under section 132(4) of the I.T. Act, 1961 regarding the manner of earning of such undisclosed income, the penalty levied by the A.O. and sustained by the Ld. CIT(A) is not justified.

6.3. We find some force in the above arguments of the Learned Counsel for the Assessee. The copy of the statement of Shri Roop Kumar Bansal recorded on 25.07.2011 in two parts, copy of which is placed at Page Nos.5 to 26 of the PB, shows that no such question regarding the manner of earning of the undisclosed income has been put to the assessee. Therefore, when no such query has been raised by the authorized officer during the course of recording of the statement under section 132(4) about the manner in which the undisclosed income has been derived and about its M/s. Benchmark Infotech (P) Ltd., Gurgaon. substantiation, no penalty under section 271AAA can be levied.

6.4. We find the Hon’ble Bombay High Court in the case of PCIT, Central vs., Phoenix Mills Ltd., (supra) has held that if the Revenue failed to question the assessee while recording his statement under section 132(4) as regards the manner of deriving such income, Revenue cannot jump to the consequential or later requirement of substantiating the manner of deriving the income as provided under section 271AAA(2) of the I.T. Act, 1961. The relevant observation of the Hon’ble High Court reads as under :

“If, as in the present case, the Revenue failed to question the assessee while recording his statement under section 132 (4) of the Act as regards the manner of deriving such income, the Revenue cannot jump to the consequential or later requirement of substantiating the manner of deriving the income. In the context of the requirement of the assessee specifying the manner of deriving the income the decision of this Court in case of M/s. Benchmark Infotech (P) Ltd., Gurgaon. Commissioner of Income Tax vs. Mahendra C. Shah (supra) would hold the field even in the context of sub- section (2) of section 271AAA of the Act. It is only when the officer of the raiding party recording the statement of the assessee under section 132(4) of the Act elicits a response from the assesse's this requirement, the assessee's responsibility to substantiate the manner of deriving such income would commence. When the base requirement itself fails, the question of denying the benefit of no penalty would not arise."

6.5. We find the Coordinate Bench of the Tribunal in the case of Neerat Singal vs., ACIT (supra) while holding that in absence of query raised by the authorized officer during the course of recording of statement under section 132 (4) about the manner in which the undisclosed income has been derived and about its substantiation, the AO was not justified in imposing penalty under section 271AAA, particularly when the offered undisclosed income has been accepted and due tax thereon has been paid by the assessee has observed as under :

M/s. Benchmark Infotech (P) Ltd., Gurgaon. “16. In view of above facts of the present case wherefrom it is evident that during the course of search proceedings the authorized officer of the department had not raised any specific query regarding the manner in which the undisclosed income has been derived and on the contrary the assessee has tried to explain the earning of the undisclosed income in question in its reply during the course of recording of his statement u/s 132(4) of the Act and thereafter. We thus respectfully following the ratio of above cited decisions of Hon'ble Allahabad High Court and Hon'ble Gujarat High Court hold that in absence of query raised by the authorized officer during the course of recording of statement u/s 132 (4) about the manner in which the undisclosed income has been derived and about its substantiation, the AO was not justified in imposing penalty u/s 271AAA of the Act specially when the offered undisclosed income has been accepted and due tax thereon has been paid by the assessee. We thus while setting aside orders of the authorities below in this M/s. Benchmark Infotech (P) Ltd., Gurgaon. regard direct the AO to delete the penalty of Rs.12,50,00,000/- levied u/s 271AAA of the Act. The ground is accordingly allowed.”

6.6. The various other decisions relied on by the Learned Counsel for the Assessee also support to the proposition that in the absence of any query raised by the search party in the statement recorded under section 132(4) regarding the manner in which the undisclosed income/investment has been earned and when the assessee has paid the due taxes and interest on the surrendered income, no penalty under section 271AAA can be levied. Since in the instant case admittedly the assessee has paid the due taxes and interest thereon of the surrendered income and no further addition has been made by the A.O. who has accepted the income declared in the revised return and since no question was asked by the search party in the statement recorded under section 132(4) regarding the manner in which the undisclosed income has been earned, we are of the considered opinion that the Ld. CIT(A) is not justified in sustaining the penalty levied by the A.O. under M/s. Benchmark Infotech (P) Ltd., Gurgaon. section 271AAA of the I.T. Act, 1961. We, therefore, set aside the order of the Ld. CIT(A) and direct the A.O. to cancel the penalty. The grounds raised by the assessee are accordingly allowed.

Order pronounced in the open court on 25.11.2021.